Measuring Output

DECEMBER 1, 2005

Economists have always known that traditional measures of output such as GDP have major lacunae - primarily in failing to account for activities and value not contracted through the market such as leisure, domestic work and ecosystem services_[1]. Unfortunately simply measuring GDP is difficult enough (proper national accounts in most countries only date from the early-mid twentieth century) and while there have been plenty ofproposals for improvements many of them pose such substantial data challenges that they remain unrealized.

Survey article: Eisner, Robert. 1988. Extended Accounts for National Income and Product. Journal of Economic Literature, December, 26 pp. 1611-1684.

[1] How might a better accounting of nonmarket economic activity change our understanding of the economy? A well-known example is the distortion in the trend of measured economic activity associated with the long-term movement of women into paid employment. Female labor force participation rates rose from about 34 percent in 1950 to about 59 percent in 2004 (Bureau of Labor Statistics, To the extent that home production is omitted from the national economic accounts, the long-term growth rate in total output likely has been artificially inflated by this shift in the locus of productive activity, as a rising share of activities such as child care, meal preparation and cleaning and yard services that used to be performed in the home now are performed in the market sector (Landefeld and McCulla, 2000). Similarly, to the extent that nonmarket output is not properly taken into account, per capita output comparisons between the United States and other countries, especially those in developing countries where nonmarket output represents a larger share of total output, may be seriously distorted. Katharine Graham. 2005. What We Don’t Know Could Hurt Us: Some Reflections on Measurement of Economic Activity. Journal of Economic Perspectives, Summer 2005, pp. 3-18